Intel Q1 2025 Earnings Call Transcript

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April 24, 2025
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Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

you

Operator

for standing by, and welcome to the Intel Corporation's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, John Pitzer, Corporate Vice President, Investor Relations.

Operator

Please go ahead, sir.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thank you, Jonathan, and good afternoon to everyone joining us today. By now, you should have received a copy of the Q1 earnings release and earnings presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I'm joined today by our CEO, Lip Bu Tan and our CFO, David Tinsner. Lip Bu will open with comments on our first quarter results, as well as some initial observations, priorities, and actions that he is driving.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Dave will then discuss our overall financial results, including second quarter guidance. We will then transition to answer your questions. Before we begin, please note that today's discussion contains forward looking statements based on the environment as we currently see it, and as such are subject to various risks and uncertainties. It also contains references to non GAAP financial measures that we believe provide useful information to our investors. Our earnings release and most recent annual report on Form 10 ks and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

They also provide additional information on our non GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures. With that, let me turn things over to Lip Bu.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Thank you, John. And let me add my welcome. I joined Intel five weeks ago. The reason I'm here is simple. I love our company.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

I saw the challenges we were facing, and I could not sit on the sidelines knowing I had the opportunity to turn things around and put us back on the path to gain market share and drive sustainable growth. Q1 was a step in the right direction, driven by Dave and Michelle's leadership. We delivered revenue, gross margins, EPS above our guidance. I want to thank them both, as well as our teams for the good execution, especially with the ongoing macroeconomic uncertainty. Our goal now is to build on this progress, but it won't be easy.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

There are many areas we need to improve and there's no quick fixes. We must remain laser focused on execution. One of my biggest learning so far is that we need to fundamentally transform our culture and the way in which we operate. Organizational complexity and bureaucracies have been suffocating the innovation and agility we need to win. It takes too long for decisions to get made.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

New ideas and people who generate them have not been given the room or resources to incubate and grow. The unnecessary silos have led to bad execution. I'm here to fix this. I'm taking shift actions to simplify the way we do business and drive transparency and accountability across the company. We will empower smaller teams to move faster and make better decisions.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

And we will significantly reduce the number of layers that get in their way. As a first step, I have flattened the structure of my leadership team. All critical product, manufacturing, and G and A functions, which were spread over two to three layers, are now directly reporting to me. This will allow me to get closer to our product and engineering groups and work directly with them to close the gaps with competition more quickly. I will apply the same streamlining approach across the company with a focus on empowering our engineering talents to create great products and make it easier for our customer to do business with us.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

To accelerate this simplification, we are taking more costs out of the business, the lower our calendar 2025 and calendar 2026 OpEx targets. We now expect OpEx of $17,000,000,000 this year and $16,000,000,000 next year. In addition, as we continue to identify ways to operate our manufacturing network more efficiently. I have directed our teams to find additional $2,000,000,000 of savings in our gross CapEx, taking our target for this year to $18,000,000,000 We will continue to take closer look at our existing factory footprint to ensure that we are making the most efficient use of our installed capacity before committing to any additional spending. I will continue to make the needed investment to reignite innovation, even as we reduce our overall expenses by minimizing projects and programs that have been taking attention away from our core client and server business.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

They will include revitalizing our engineering core and rebuilding our engineering talent pool with urgency by promoting strong leaders internally, bringing back critical loss talent, and recruiting new people. In addition, we are mandating a four day per week return to office policy, effective Q3 twenty twenty five. I know firsthand the power of teamwork, and this action is necessary to reinstill a more collaborative working environment, improving efficiency and boost innovation. By eliminating inefficiencies and transforming how we do business, I strongly believe we can reduce our costs while securing our future. Many of you have asked about my longer term strategic plan.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

It is appropriate question. It's a little bit too soon for me to provide all the details, but let me share with you my priorities. First, the best products always win. And this is very important that we refocus our core franchise to start building best in class products again. We have a good foundation.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Our ecosystem in client and data center computing is valuable and durable. And we still maintain a large market share in both. My focus will be ensuring that our team build products that are highly competitive and meet the needs of our customer as we enter a new era of computing defined by AI agents and reasoning models. To achieve this, we are taking a holistic approach to redefine our portfolio to optimize our products for new and emerging AI workloads. We are making necessary adjustments to our product roadmap so that we are positioned to make the best in class products while staying laser focused on execution and ensuring on time delivery.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

However, I want to emphasize that this is not a quick fix here. These changes will take time. Our goal is to become the platform of choice for our customers. This requires us to radically evolve our design and engineering mindset and anticipate the needs of our customer well in advance. I have received direct feedback from many of our largest customers who are also close personal friends.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

I'm taking this feedback to heart and using it to inform and change our approach to product and platform design. Second, we need to refine our AI strategy with a focus of emerging areas of interest. My experience helping successfully fund and incubate many startups in this space provides unique insights that we will leverage in this front. Our goal will be to take an integrated system and platform view to develop full stack AI solution that enable more accuracy, power efficiency, and security for our enterprise customers. Our goal will be to enable the next wave of computing defined by reasoning models, agentic AI and physical AI.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Third, we need to build trust with foundry customers. We have a lot of important building blocks in place, including the realm of Intel 18A in second half of twenty twenty five to support the launch of our first Pentagon Lake SKU by year end, with additional SKUs coming in the first half of twenty twenty six. However, I know from my years at Cadence Design that success in foundry business requires more than process technology, manufacturing capabilities alone. It is first and foremost a customer service business, built on foundational principle of trust. And we need to instill customer service mindset across our foundry business.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Success in foundry relies on recognizing that each customer use different design tools, methodologies, and styles. As a foundry, we need to ensure that our process technologies can be easily used by a variety of customers, each with a unique way of building their products. To do this, we are more rapidly embracing industry standard EDA tools and best design practices. Here again, there's no quick fix, but we will make the necessary changes to our roadmap to deliver on the commitments we make to our foundry customers. We must learn to delight our customers by building wafers that meet their required power, performance area, cost, quality, yield, reliability, and on time schedule.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

While we are currently focused on delivering Intel 18A, we are also working closely with customers to define the critical KPIs to ensure online delivery of Intel 14A. Lastly, we need to strengthen our balance sheet. Our business is capital intensive, and we have important investment to make at the time when our financial performance is not where it needs to be. This means we need to be prudent with capital. In addition to new targets of OpEx, CapEx, we will also look to further monetize non core assets.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

I'm very pleased to have Silver Lake as an investor in Altera and welcome on board Rakib to help drive the business to its potential. In addition, we have made the decision not to spin off Intel Capital, but to work with the team to monetize our existing portfolio, while being more selective on new investments that are supported strategy. We need to get our balance sheet healthy and start the process of deleveraging this year. As we are building the new Intel, you can expect us to stay humble, drive the necessary changes to delight our customers. My motto has always been to under promise and over deliver, and I will be not satisfied until we regain the trust of our customers, putting the company on sustainable path of gaining shares and growing revenue and deliver consistent returns for our shareholders.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

With that, I will turn it over to Dave.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Thank you Lip Bu. Our Q1 results mostly reflected our view entering the year that our two biggest markets were poised for growth. On the client side, the end of service for Windows 10, the expected growing adoption of AIPCs, and an aging installed base following the COVID era refresh pointed to a PC TAM growing three to 5%. Similarly, on the traditional server side, delayed infrastructure upgrades driven by the rapid adoption of AI servers in 2024 supported double digit CPU core growth this year on a roughly flat units. More recently, the economic landscape has become increasingly uncertain driven by shifting trade policies, persistent inflation, and increased regulatory risk.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

While we have yet to see a meaningful change in customer buying patterns, we think it prudent to manage the business with a level of conservatism going into the second half of the year. First quarter revenue was $12,700,000,000 coming in at the high end of our guidance range driven by better than expected Xeon sales. Similar to Q4 twenty twenty four, we believe Q1 revenue benefited from customer purchasing behavior in anticipation of potential tariffs, though it is difficult to quantify the magnitude. Non GAAP gross margin was 39.2%, approximately three percentage points above our guidance on much stronger than expected demand for Raptor Lake combined with improved cost for Meteor Lake. While we continue to see the mix of AIPCs growing throughout the year, the rate of growth off a lower than expected Q1 will be lower.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

We delivered first quarter earnings per share of 13¢ versus our guidance of breakeven EPS driven by higher revenue, stronger gross margin, and lower operating expenses. I was particularly pleased to see our spending down $400,000,000 sequentially and $700,000,000 year over year as we continue to focus on optimizing our cost structure. Q1 operating cash flow was 800,000,000 We had growth CapEx of $6,200,000,000 with offsets of $1,700,000,000 in the quarter resulting in an adjusted free cash flow of negative $3,700,000,000 We ended the quarter with a cash balance of $21,000,000,000 and received $1,100,000,000 from CHIPS grants and $1,900,000,000 for the final close of our NAN business sale to SK INIX. Moving to segment results for Q1, as previewed on our Q4 twenty four earnings, we updated our segment reporting for Q1 twenty twenty five. Details can be found in the appendix to our earnings deck and in our q one twenty five ten q.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

The following commentary reflects the updated segmentation and accompanying recasted 2024 financials. Intel products revenue was $11,800,000,000, down 10% sequentially but above our expectations. CCG revenue was down 13% quarter over quarter below typical seasonality and in line with our expectation with higher than expected volumes offset by product mix and competitive pressure. DCAI revenue was down 5% sequentially and above expectations driven by hyperscaler demand for host CPUs for AI servers and storage compute. Operating profit for Intel products was $2,900,000,000, 20 5 percent of revenue and down $632,000,000 quarter over quarter on lower revenue partially offset by reduced operating expenses.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Intel Foundry delivered revenue of $4,700,000,000 up 8% sequentially on pull ins of Intel seven wafers and increased advanced packaging services. Intel foundry operating loss in q one was $2,300,000,000, roughly flat quarter over quarter and in line with expectations. Structural cost improvements were offset by startup costs associated with the ramp of products on Intel eighteen a. Turning to all other, revenue came in at $943,000,000 and was down 15% sequentially, slightly above expectations. The three primary components of all other are Mobileye, Altera, and IMS.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Collectively, the category delivered $103,000,000 of operating profit. As Lip Bu stated, we announced on April 14 our intention to sell 51% of Altera to Silver Lake Partners for an almost $9,000,000,000 valuation with Intel receiving net cash proceeds of $4,400,000,000. We believe the value of our remaining 49% stake in Altera will grow over time through our partnership with Silver Lake and with the addition of Raghav Hussein as the CEO. We expect this deal to close in the second half of twenty twenty five, at which point we expect to deconsolidate Altera from our financial results. Now turning to guidance.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Historically, average sequential growth in q two has been roughly flat with q one. However, the very fluid trade policies in The US and beyond, as well as regulatory risks have increased the chance of an economic slowdown with the probability of a recession growing. This makes it more difficult to forecast how we will perform for the quarter and for the year even as the underlying fundamentals supporting growth I discussed earlier remain intact. While we have offsets including a global, highly diversified manufacturing footprint to help mitigate tariffs, we will certainly see costs increase and we feel it prudent to anticipate a TAM contraction. The biggest risk we see is the impact of a potential pullback in investment and spending as businesses and consumers react to higher costs and the uncertain economic backdrop.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

As a result, we're forecasting a wider than normal Q2 revenue range of 11.2 to $12,400,000,000 down two to 12% sequentially. Within Intel products, we expect DCAI to decline at a faster rate than CCG. We expect Intel foundry revenue down quarter over quarter due to pull ins to q one, lower wafer and advanced packaging volume, and capacity constraints in Intel seven which we expect to persist for the foreseeable future. For all other, we expect revenue for the sum of those parts to be roughly flat sequentially. At the midpoint of 11,800,000,000 we expect gross margin of approximately 36.5% on lower revenue and mix to our outsourced and lower margin client products with a tax rate of 12% and breakeven EPS all on a non GAAP basis.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

As you think about the full year, we recommend you start by using the last ten year seasonality to model sequential changes in revenue, but be mindful of the significant uncertainty in markets today, especially due to the potential for meaningful tariffs and tight supply on our older nodes. We expect non controlled income or NCI to net to zero in Q2 and for the full year to be approximately $500,000,000 on a GAAP basis. NCI is still expected to grow in fiscal year twenty twenty six to an updated range of $1.3 to 1,500,000,000.0 on a GAAP basis and meaningfully increase further in future years. As Lip Bu discussed earlier, we're simplifying our organizational structure and the way we work across intel so that we innovate faster and adapt more quickly where needed to better serve our customers. As a result, we now expect 2025 OpEx of $17,000,000,000, 5 hundred million dollars lower than prior expectations with a 2026 OpEx target of $16,000,000,000 We are likely to have restructuring charges associated with these actions, some of which may be included in our non GAAP results.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Since we have not yet estimated these charges, they are not included in our guidance. These spending reductions will be driven by numerous broad based transformation activities. Key 2025 focus areas will be refocusing our portfolio, eliminating organizational complexity, transforming our engineering functions, and continuing to drive to leading SG and A efficiency. As Lip Bu stated, we anticipate our 2025 gross capital investment will now be approximately $18,000,000,000 which is below our previous guide of $20,000,000,000 reflecting further operational efficiencies and better utilization of our construction in progress. While gross CapEx is down, we maintain our range for 2025 net CapEx to be approximately 8,000,000,000 to $11,000,000,000 due to uncertainty regarding timing of the US government fulfilling their obligations in our CHIPS agreement.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Beginning the process of delevering our balance sheet in 2025 remains a top priority for us as evidenced by our lower OpEx and CapEx targets and the value unlock across our non core assets. I'll wrap up by saying that Q1 was a solid quarter to start even as the rest of the year is more uncertain. We will closely manage what's in our control and react quickly as the environment evolves. I'm encouraged by Lip Bu's leadership and focus on enhancing our competitive position, improving our balance sheet and setting us on a path to deliver consistent returns to our shareholders. With that, let me turn the call back over to John to begin the Q and A.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thank you, Dave. We will now transition to the Q and A portion of our call. Michelle Johnston Holdhaus, CEO of Intel Products will be joining Lip Bu and Dave during the Q and A session. As a reminder, we would ask that each of you ask one question and a brief follow-up question where applicable. With that, Jonathan, can we take the first question please?

Operator

Certainly. And our first question comes from the line of Ross Seymore from Deutsche Bank. Your question please.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Hi guys, thanks for letting me ask a question. Lip welcome to Intel. Lip Bu, the first question is for you. You talked a lot about increasing the flexibility and speed at Intel and unfortunately having to shrink the headcount to do so. How do we balance fixing the roadmap with also filling the foundry and making sure you have the unit volumes there?

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

It seems like the flexibility and speed goals would be more quickly adopted and capitalized by going to Foundry, but you have the need to fill your own Intel Foundry. So balancing the internal product roadmap versus the Foundry side of things is basically the question.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Ross, thank you so much for the questions. So a couple of things. One is clearly the approach is basically to flatten the organization, number of layers, and so that we can really focus on the right products and then deliver the customer the solution. And then in terms of the product and the roadmap, I think it clearly we like to focus on what is the killing product that we want to have and then laser focus on make sure that we deliver on time on the performance and then the power that make sure that we meet the customer requirement. And then in terms of the foundry, clearly 18A is very important for us, for Penta Lake.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Secondly, I think we clearly one by one, improving the yield, the reliability, and so that our internal customer can use of that. I think from the product side, they have to do the best they can, and it'll depend on whether it's inside or outside, and then drive the performance of the products.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Ross, do you have a follow-up question?

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Yeah, did have one for Dave. Dave, on the gross margin side of things, you talked a little bit about the slope for the rest of the year, but especially given the strategic changes that Lip Bu is putting into place, the cost cutting and the OpEx side of things and the lower CapEx that you talked about. Can you just talk about some of the puts and takes on gross margin if you think about 2025 as a whole and maybe even 2026? What are some of the goals that you have?

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Yeah, sure, Ross. And I'll qualify this by saying, it's a relatively dynamic industry out there right now, given the tariffs and the implications on what that might look like from our TAM and from the macro. So I'm saying this with some murkiness as it relates to the full year picture. I would just say that when we look out through the year, we do expect to see our mix on the client side move more to the Lunar Lake and so forth. And as you know, Lunar Lake's margins are more under pressure given the memories and package, and so that makes the accounting make it look a little funky.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

So that will be a headwind to our margins on a go forward basis. And in addition, when we look at AT and A, we're going to be ramping that through the year, and their startup costs associated with that bringing that up in Arizona. That's always going to put some pressure on gross margins through the year as well. I think as you get into '26, things start to go the other direction. Panther Lake will be ramping more in volume next year.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

It's a better margin product than Lunar Lake just on an apples to apples basis. But on top of that, as you know, have 18A on Panther Lake, so it brings the wafers back into the fabs and we get the margin stacking benefit of that on a consolidated basis. So we'd expect next year to look better. Of course, all of that is subject ultimately a lot of what is reflected in the margins is how we do on the top line side. And so we've got to sort through how tariffs impact us.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

I think from a tariff perspective, this year could be choppy depending on what ultimately is settled across The US and abroad. But we do have a global supply chain. So we do have the ability to flex to mitigate a lot of the headwinds we face. It's just we can't obviously turn this stuff on a dime. It's going to take us time to optimize the network to what the rules are in terms of tariffs.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Thank you.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thanks, Russ. Jonathan, can we have the next question please?

Operator

Certainly and our next question comes from the line of Timothy Arcuri from UBS. Your question please.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thanks a lot. Dave, can

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

you help us just also on gross margin? Can you help us with sort of what a clean number is for March? You guided 36, but that was supposed to have some COGS headwinds from the way you accounted for the grants, but it came in at 39. So sort of what's the clean number for March? Then also you said that the Q1 number would be the trough.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

So I know you're guiding Q2 to 36, five, but like is could it go lower than what you're guiding?

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Yeah, I mean obviously we thought Q1 would be a trough and it turned out to be better, so that put some pressure on 2Q now on a relative basis. And like I said, the tariff dynamics do kind of change outlook through the year, so that's an additional pressure point for gross margins through the year. In terms of the margins for Q1, kind of cleaning that out, mean clearly the biggest benefit to the gross margins was the beat on the top line, kind of handedly beat top line that helped out a lot. In addition, we did better or we had more of our volume come from Raptor Lake versus Lunar Lake and so that was mix beneficial to gross margins. And then we did, I think a little bit better job in terms of just managing spending and so forth that helped out.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

But the two bigger components were the higher revenue in Raptor Lake. Think if you strip those two things out, we were we would have been much closer to the guide.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Tim, do you have a follow-up?

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

I do. Yeah. So, Lip Bu, I know the prior policy had been to not announce new, you know, third party foundry customers. How how how do you think about that? And how can you update us on sort of where you're tracking?

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Is there anything to help us believe that maybe you can add a Tier one customer and maybe this year, if not sooner, I know that they want some power improvements on AT and A, but can you kind of

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

talk about that? Thank you.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Sure. Thanks, Tim. I think the priority one for us is for Intel Foundry is ramping our internal customer, like the Pentelic I mentioned earlier.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

And then the next step is basically build the trust with our Foundry customer and the PDK, the schedule, to really make sure that we're really robust on that. And then in terms of the process technology, the priority is really focused on yield, reliability. And also I think it's very important to understanding this is a customer service mindset so that every customer has different design tool, methodology, style. We want to make sure that we really do the pattern matching so that we really optimize for their solution they want to drive. So I think it's kind of a one, two step.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

And then we really continue to drive the efficiency so that we can really scale the business.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thank you, Tim. Jonathan, can we have the next question, please?

Operator

Certainly. And our next question comes from the line of Joe Moore from Morgan Stanley. Your question, please.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Great. Thank you. So a number of elements in your letter and in your comments about kind of improving product execution. I guess five weeks into it, can you give us your assessment of Panther Lake and Clearwater Forest in the 1885 portfolio and give us a sense of are those leadership products? Do you still have work to do to get to the leadership position that you want to have?

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Yeah, let me start. I think Michelle will chip in. First of all, I think clearly our laser focus on execution and in terms of deliver on time, performance that we can meet the customer and industry trends and the workload. So that is number one priority for us. In terms of Penta Lake, clearly on the 18A is very important.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

We have the first SKU by the end of this year, then we have additional SKU the next year. So I think so far we are very focused on that. Michelle?

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, maybe just to add, Joe, I think I talked about this a little bit in our Q4 earnings. Panther Lake really matches what you see in both Meteor Lake and Lunar Lake in the way that we're going to ramp, bringing our first most performant product out first with customers and then the additional SKUs in Q1, which really allows us to line up with the commercial marketplace. That product looks quite good competitively, and we get a lot of customer interest. So I think we continue to track well there. You also asked about Clearwater Forest, and I talked a bit about that and the prioritization between Panther Lake and Clearwater Forest in Q4 as well.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

And so for Clearwater Forest, it has some very unique packaging that comes to market with it. And therefore, we decided to prioritize getting Panther Lake out first. And then in the first half of twenty twenty six, you'll see Clearwater Forest. I would just remind you that Clearwater Forest is an e core based product. So it's a derivative of Granite Rapids.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

And so it'll be more of a purpose built product than your kind of leading performance part in the marketplace. But both are on track for delivery.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Joe, do you have a follow-up question?

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

I do. Thank you for that. The comment that you guys made about seven nanometer being constrained for the I'm sorry, Intel seven being constrained for the foreseeable future, can you elaborate on why that is and what impact that might have?

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Pretty simply, we're doing better on Raptor Lake and Raptor Lake's and Intel seven part, and so we obviously plan out our network to be just to the edge in terms of capacity, and when things shift meaningfully like they did, we're going to be hand them out. That said, that's usually a good thing for the factory, when they're constrained they leverage the network to try to produce more wafers and every wafer becomes less expensive as a result, so we obviously do like that. Ultimately though, we do want to see these AIPC products gain more traction in the market, and we're optimistic that happens in the year.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah. Maybe just to add on both seven and ten nanometer. Obviously, the macroeconomic concerns that we see and just with the overall economy, we are particularly seeing consumer, a stronger n minus one and n minus two demand in the marketplace as those system price points tend to stay rather fixed. And so we've been doing our best to respond to that shift, while at the same time in the commercial segment, we are seeing that Windows 10 refresh and a strong demand for AIPC. I think there's both good and bad news in that, and that as you see n minus one, n minus two, as Dave talked about, you see a lot of that gross margin flow to the bottom line.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

It is also, as the AIPC ramp slows, that's also good for gross margins. But I do want you to walk away with the fact that we continue to invest in the AIPC. We do view this as the long term growth segment. We have our AI symposium with all the software vendors this week, and we see a ton of excitement from our customers around Lunar Lake. And so we'll be balancing our portfolio and our mix across our foundries.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thanks, Joe. Jonathan, can we have the next question, please?

Operator

Certainly. And our next question comes from the line of C. J. Muse from Cantor Fitzgerald. Your question, please.

CJ Muse
Senior Managing Director at Cantor Fitzgerald

Yeah, good afternoon.

CJ Muse
Senior Managing Director at Cantor Fitzgerald

Thank you for taking the question. I guess first question for Lip Bu. You touched on your AI strategy focusing on new and emerging workloads like reasoning models, agentic AI and physical AI. Is the plan here to reinvent x86 to succeed in the AI world or perhaps a broader portfolio, including ARM? And then should we be interpreting your focus more on edge AI?

CJ Muse
Senior Managing Director at Cantor Fitzgerald

Thank you.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Yeah, good question, CJ. I think first of all, as I articulated on the AI strategy, it's very important to understanding the workload and the mission that we can really deliver. And then clearly, we're going to look for partnership with the industry leader to build a purpose built silicon and a software to optimize for that platform. So we like to be the compute platform for doing that. And clearly, think one of the big area will be the kind of edge and inference area.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

And that will be important to have the architecture that are low power and drive efficiency. And so those kind of things that we are exploring some of this new architecture and some of this disruptive platform that we try to build. So stay tuned. Over time, we're going to start to articulate the strategy for that.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

CJ, do you have a follow-up question?

CJ Muse
Senior Managing Director at Cantor Fitzgerald

I do, Jed. Thanks. Dave, to follow-up on the OpEx guide for 'twenty five and 'twenty six, Do those numbers fully contemplate the headcount reductions that you are planning or over time? Could we see additional savings?

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

I would say, Lip Bu

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

has driven us to think about the company in a leaner, more efficient, faster to execution kind of way. And that's been kind of the underpinning of what we are doing from an OpEx perspective. So it's all of that elimination of the bureaucracy, taking out the layers and support that drive us to a number that's kind of in this $17,000,000,000 range for '25 and $16,000,000,000 range for '26. We are still in the process of working through the details of how we land to that number, but I feel confident based on his direction we will land in that zip code for those numbers. We have not yet identified what that means from a headcount perspective, there's obviously other categories of spend in operating expenses in addition to labor and those will also be looked at and we'll scrutinize and make sure that they're spent in a highly efficient manner and we'll have more details around how we will land the $16,000,000,000 number for 'twenty six when we end the second quarter and do the earnings in July.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

I think we'll have a good sense of what that means. Whether it can be reduced further, I think we'll have to see. I think the $16,000,000,000 number we feel very confident we can land. We'll update you in July as to for sure where that number is with a little bit more precision. I think if you asked Lip Bu today, he'd probably say there are areas where he would like to invest as well.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

So to the extent we're freeing up investment, it may go to some other areas that he wants to invest in. So, I think 16 would probably be the good working assumption, but we'll update you in July, like I said.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thanks, CJ. Thanks, Jonathan. Can we have the next question please, Jonathan?

Operator

Certainly. Our next question comes from the line of Vijay Rakesh from Mizuho. Your question, please.

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

Yeah. Hi. I was just wondering, as you look at the data center side, how you see that playing out through the year? Saw you kind of kind of June.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Vijay, apologize. Can you restate that? You broke up a little bit at the beginning of the question.

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

Just wondering how the data center side would play out to the rest of the year as you look at the second half especially.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, thank you for the question. As we look at Q1, we saw higher than expected growth really driven by a few hyperscalers. We are optimistic about the rest of the year. If you look at the product roadmap we have with Granite Rapids coming out and Xeon six, some of the traditional consolidation that that drives, as well as being the CPO choice as the AI head node. And we are starting to see some improvement in telco as well.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

However, as Dave and everyone's talked about, we still do see a large macro concern. And so we need to continue to understand what that means. Much like we talked about before in client, we are seeing strong demand on older gen parts in data center as well, and we're working through that from a supply perspective. As stated in last quarter's earnings, I talked about our main goal being to stabilize market segment share, create margin, and drive up ASPs. And so those are things that we're going to be laser focused on for the remainder of the year.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

We do have a good product portfolio. We do see strength both in hyperscalers and enterprise, but rest of world is where we really see a market segment share challenge. And so that's where we'll be focused.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

PJ, do have a follow-up question?

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

Yes. Thanks, John. Yibo, congratulations on

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

the new assignment. Just looking at CapEx, maybe this is for Dave. Any thoughts on how you would look at CapEx through that time frame 2526? Are you looking at rationalizing that given the footprint that you have?

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Yeah. Oh, go ahead. Sorry. Go ahead. Okay.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

In '25, we think we can operate to an $18,000,000,000 number as we talked about. I would just tell you we have 50,000,000,000 or so of assets under construction, a lot of which are equipment that's still in bubble wrap, so we're in some ways taking a more aggressive approach to driving better return on what we've spent already and that's allowing us to spend less in capital. I think that story probably plays out next year as well, although I think it's too early to talk about guidance for CapEx for next year. We're going to leverage our assets under construction next year as well. Longer term, this is a high intensity model obviously, we've talked about roughly having 25% capital intensity as we look at this in a full IDM model, and I think that's probably a good working assumption on a long term basis.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thank you, Vijay. Jonathan, can we have the next question please?

Operator

Certainly, and our next question comes from the line of Stacy Raskin from Bernstein Research. Your question please.

Stacy Rasgon
Analyst at Bernstein

Hi, guys. Thanks for taking my questions. I wanted to go back to that seven nanometer constraint, the capacity constraint. So you said you're seeing a lot of demand for for Raptor. Like like, I guess I'm just surprised given how good Meteor Lake and Luna Lake

Stacy Rasgon
Analyst at Bernstein

Like, why are you seeing so much more demand for the older generation parts versus new ones? Or is it I mean, are you pushing the older gen stuff like because the margins are are better? Like, what what's what's on there?

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, thanks for the question, Stacy. We're not pushing the old parts based on margins. What we're really seeing is much greater demand from our customers for n minus one and n minus two products, so that they can continue to deliver system price points that consumers are really demanding. As we've all talked about, the macroeconomic concerns and tariffs have everybody kind of hedging their bets in what they need to have from an inventory perspective. And Raptor Lake is a great part.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Meteor Lake and Lunar Lake are great as well, but come with a much higher cost structure, not only for us, but at the system ASP price points for our OEMs as well. And so as you think about an OEM perspective, they've also ridden those cost curves down from a Raptor Lake perspective, and it allows them to offer that product at a better price point. So I really just think it's macroeconomics, the overall economy, and how they're hedging their bets.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Stacy, do you have a follow-up?

Stacy Rasgon
Analyst at Bernstein

I do. To follow-up on that, so what does that imply for the Panther Lake launch, which I guess is going to happen, you said by year end. So I I guess we'll get at least one SKU by by December. Most of it comes next year. But if if that's happening, like, in the midst of a of a macro event, tariffs, like, who knows?

Stacy Rasgon
Analyst at Bernstein

Like, how do I think about, the launch of those new products given demand seems to be pivoting back to the older products and the environment hasn't even gotten bad yet?

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, I think it's a very fair question. The Panther Lake launch matches exactly what we did on both Meteor Lake and Lunar Lake in regards to timing. So it's very aligned with how customers like to take products to market. Panther Lake is a great product both from a performance and price perspective for our customers. So I think you'll see a strong uptake of that product.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

We still see very strong commercial demand for AIPC as they're deploying their fleets, as they're doing their upgrades. They want to future proof their products and have that AI capability. So I don't think you're going to see that change in commercial. And if you look at our traditional ramp, for these types of products, we tend to go faster in commercial first, and then consumers come on board. And so we'll have to balance where is the economy at the end of the year.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

But I feel very bullish about the Panther Lake product and our customer feedback.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thanks, Stacy. Jonathan, can we have the next question, please?

Operator

Certainly. And our next question comes from the line of Srini Pajjuri from Raymond James. Your question, please.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

Thank you. Michelle, I want to go back to the comments you made about the server market, in particular about the Q2 guidance. I'm just curious as to why Q2 is tracking a little bit weaker. And then as we look out to the next few quarters, I know you talked about Granite ramping and also potentially TAM growing from a per core basis in double digits. But at the same time, we do have incremental competition from ARM, especially in headnotes, where I think you guys have done well.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

So I'm just wondering how to think about maybe talk about why the guidance is a little softer for Q2, and then how to think about your market share for the next few quarters. Thank you.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, thank you for the question. As I look at Q1, we had a few hyperscalers that were particularly strong in Q1. And so you could call that hedging your bets, or doing pull ins, or just balancing out their portfolio. But we don't expect to continue to see that into Q2. And so when we look at the overall macro demand, the concern around tariffs and restrictions, as well as the stronger demand for older generation parts, there's more demand there than we currently can supply.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

And so you have to balance that as well. And then as I've continued to say, we're going to do everything we can to stabilize market segment share. But that also creates a lot of margin and ASP pressure that we need to balance throughout the year. And so Granite Rapids is a great product. We are seeing excitement from our customers around that, particularly in the consolidation, particularly with edge AI, a lot of excitement from customers about finding ways to be able to offer service revenue there.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

But at the same time, as you said, there is good competition. And so we're just being, I think, very prudent in what the year looks like. We understand there is competition, but we've got a good product portfolio. But as Lip Bu said, we want a very strong say do ratio. So we're going to commit to a number that we can beat.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Srini, do you have a quick follow-up?

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

Yeah. And then on Panther Lake, I know Lubu said it's a priority to ramp AT and A with Panther Lake. I know in the past, your target was to, I guess, bring in 70% of the dye in house to 18A. I'm just wondering if that's still the target. And then as we look forward to NovoLake, has the decision about internal versus external been made yet?

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

If maybe you can give us some color on that as to what percent or how you think about internal versus external mix for NOLA. Thank you.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, both are great questions. When we look at AT and A, our goal of bringing everything in house, getting to a 70%, approximately 70% mix remains steadfast. And there's no change to that POR. And Panther Lake helps us get on that journey. Pat talked about this in Q3.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

I talked about it in Q4. '1 of the great strengths we have is the fact that we do have optionality when it comes to where we build our products. We build products with TSMC, Samsung, and Intel. And so when you look at Nova Lake, really what we have done is we've optimized at the SKU level the process node that we're going to use. And so when you look at Nova Lake, you'll see product both at TSMC and you'll see product internal to Intel.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

But when you look at the aggregate of Nova Lake, we will build more wafers on Intel process than we are on Panther Lake. So that commitment to continue to drive wafer growth with our internal foundry partners remains steadfast, there's no change to strategy there.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

I just add one other thing that just I come over the top of the organization on is we are going to continue to balance internal and external manufacturing of wafers. We do that because that's part of our capital strategy to maintain a reasonable capital intensity relative to the business. So just as much as we're pushing on filling the fab and making sure we're utilizing all of our assets and leveraging the investments we've made on the process side, we also want to make sure that we're not over investing in capital and are left ultimately with a bad answer from a return on asset perspective. That's part of our smart capital strategy is always to keep a certain percentage of our wafer capacity outside.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

You, Srini. Jonathan, can we have the next question, please?

Operator

Certainly. And our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Hey, guys. Thanks for taking my question. This one's for Dave, a little more shorter term. Just if you look at the first twenty something days of the quarter here, I was surprised that you saw a little bit of weakness on the client side. Obviously, data center down a little bit more.

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

But could you maybe just give

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

us an update on if you're seeing any pull ins, any changes in dynamics from a geography perspective, any customer behaviors that are looking any different for the first couple of days of this quarter, just as it helps as a framework for the entire market and then also for you guys as well.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Yeah, I would just say that for the first whatever number of I didn't count it, so I'm assuming it is twenty days. We are off to a relatively strong start, but what we are anticipating and what's built into our guidance that the macro is going to start to catch up to the implications of the tariffs. And so June is likely to be softer than our strong start to the quarter. But so far, we're off to a strong start. Of course, I can't completely rule out that it might continue through the whole quarter, in which case we're probably looking at the higher end of the guidance.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

But for now we've built in the expectation that tariffs will start to weigh on the macro.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Tom, do you have a follow-up?

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Yeah, I do. Michelle, in December when

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

we chatted when you first took over the job, you spoke about products being first. And specifically, talked about the data center side of things. And I think earlier to CJ's questions, you addressed the edge. But if you look at the products that you've had with Gowdy, Falcon Shores inside the data center specifically, could you talk about what the strategy will be going forward? Are you planning on launching a new product?

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

I think at the time you said, we need to learn with what we've already had, so we're not starting from scratch. But any update to that strategy, particularly inside the data center?

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, I'm glad that you asked. Actually, in the first five weeks that Lip Bu has been here, he and Sachin have spent a significant amount of time relooking at our whole AI strategy, our portfolio of assets, how we need to come to market to be able to compete in that marketplace. You've heard Lip Bu really talk about the fact that we want a workload first approach. And so in Q4, I talked about the fact that we weren't going to build Falcon Shores, right, and that we were going to stay with the POR of Jaguar Shores. So we still have a Jaguar Shores product on our roadmap.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

And Sachin and Lipu over the coming months or so will start to talk externally about what our AI roadmap looks like, what we'll do in between then, and then as we really dive in with our customers on that workload roadmap, what needs to change. But I think you'll see us be quite aggressive. We know that that is a segment of the data center market that we're not competing in today. And we need a robust portfolio as all the customers are looking for alternatives.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Thanks, Tom. Jonathan, can we have the next question, please?

Operator

Certainly. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Vivek Arya
Vivek Arya
Managing Director at Bank of America

Thanks for taking my questions. Let me for the first one. You said there are no quick fixes. So how much time realistically should investors be prepared for in terms of Intel's turnaround? Is it one year, two years, three years?

Vivek Arya
Vivek Arya
Managing Director at Bank of America

And related to that, what are the right metrics to measure that progress? Is it share gains? Is it gross margins? Is it is it free cash flow? So, basically, what metrics are you optimizing for, and what is the timeline in order to achieve that?

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Vivek, it's a good question. So I think clearly there's no quick fix as you described. And as we're working through the roadmap and weekly update with the team and then defining what is the new workload look like in terms of the CPU, GPU, and AI, and then driving some short term and some longer term products. And then shorter term, we may embrace some of the disruptive technology that's out there. And we can partner with them to bring the market faster and meet the customer requirement.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

So I think stay tuned. I mean, those are the things that we are working on. In terms of the matrix, clearly we want to have the best products. And that is really especially addressing the edge. You've got to be power efficient and also able to drive the performance that we like.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

And time to market is critical on schedule. And so those are the things that we look at in terms of matrix to really deliver what the industry want and customer want. And that's something that we're working on.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Vivek, do you have a quick follow-up?

Vivek Arya
Vivek Arya
Managing Director at Bank of America

Yes. Thanks, Don. So on the IDM structure, Liberu, you know, given your experience in the industry, you know, what we have seen from the outside is that the most successful businesses in semis are either fabless or or a dedicated foundry. And few years ago, when Intel started to give out financials for the manufacturing business, the hope was that that would turn it around. But what we have seen is just consistently negative gross margin.

Vivek Arya
Vivek Arya
Managing Director at Bank of America

So do do you think that just 18A progress is sufficient, you know, just kind of low single digit top line growth is sufficient to make this business viable? So at what point, you know, do you need to rethink whether this IDM structure, regardless of the way financials are broken out, does make sense?

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Right. I think it's a good question. So I think clearly we want to have that kind of a balanced approach. One is our, you know, the foundry got to be able to deliver the product that internal customer needs and also can serve our Intel customer well so that we make them the simplicity and also online schedule to deliver. And then meanwhile, in that respect, we clearly view TSMC as our partner and they have been very good partners to have.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

And Morris and Cece are very longtime friend of mine. And we also met recently, try to find area we can collaborate in so that we can create a win win situation. And then meanwhile, we continue to drive the efficiency, the yield that 18A and also look at with the customer, what can we do on the 14A and then so that we can really wisely effectively using some of the foundry capacity footprint that we have.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Vivek, thank you. Jonathan, we've got time for one last question, please.

Operator

Certainly. And our final question for today comes from the line of Aaron Rakers from Wells Fargo. Your question, please.

Aaron Rakers
Aaron Rakers
Managing Director - Technology Analyst at Wells Fargo

Yeah, thanks, John, for fitting me in. I guess maybe the first question would be is just as I think about the guidance that you gave and more importantly, the operating expense structure that you talked about in 'twenty five and 'twenty six, just to be very clear, that's exclusive of the pending divestiture of the 51% stake in Altira. I guess that's just a point of clarification.

David Zinsner
David Zinsner
Interim Co-CEO, Executive VP & CFO at Intel

Yeah, let me decide what exclusive means. But essentially, the 17,000,000,000 in '25 and the 16,000,000,000 in '26 actually assume Altera's OpEx is in that number. Now, obviously, as soon as we deconsolidate it, it won't be, so the target of the 60 will come down dollar for dollar for what Altera is spending in terms of OpEx. But given that it hasn't closed, we don't know the timing of when it closes. It was a little difficult to provide anything with that built into the forecast, so we just included it.

John Pitzer
John Pitzer
Corporate VP-IR at Intel

Aaron, do you have a follow-up?

Aaron Rakers
Aaron Rakers
Managing Director - Technology Analyst at Wells Fargo

Fair enough.

Aaron Rakers
Aaron Rakers
Managing Director - Technology Analyst at Wells Fargo

I do. And it's maybe more strategic back to kind of the core data center AI strategy. And I know it's early days, but, Lipu, I'm curious of how you think about, you know, rack scale, networking and the pieces that Intel has internally to really compete in the cloud infrastructure AI build out. Is it UCIE? Is there other pieces of the building blocks that you think strategically is needed to really drive if it's with Jaguar Shores or how that strategy plays out around the networking scale upside?

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Yeah, it's a good question. So let me start first and then Michelle will add on to it. So clearly the rack scale approach of the system I think is very important that we need to have a full scale in those hardware and software to do it. And then clearly leverage on our XPU, CPU and GPU approach, and then to drive that. And I think there will be something that we're going to work on and then come up with a killing product that we can really launch the product.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Yeah, maybe I would just add that we are seeing great success with the IPU products that we've built. We will see at least double digit or doubling of that revenue from 24 to 25. We also see optics as a critical element of that Rack Scale architecture as well. And I think I would just remind everybody that Intel is the only foundry out there that has an optics based foundry option for our customers. And so we're very optimistic that those two things add to the overall opportunity to build out that RackScale architecture.

Michelle Johnston Holthaus
Michelle Johnston Holthaus
Interim co-CEO and CEO of Intel Products at Intel

Also just our open x 86. What we are seeing is that customers do love the x 86 ecosystem, the software around it. And if they can build out an AI infrastructure with x 86, they're very interested in doing that. We already have one large custom design win, and I would expect more.

Aaron Rakers
Aaron Rakers
Managing Director - Technology Analyst at Wells Fargo

Thank you.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

With that, thank you for joining us today. We have a clear opportunity to strengthen our business in both products and foundry. We have clear priorities to better serve our customers and create value to our shareholder. I look forward to work ahead as we build the new Intel.

Lip-Bu Tan
Lip-Bu Tan
CEO at Intel

Thank you.

Operator

Thank you, ladies and gentlemen, your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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Intel Q1 2025
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